Rating Action: Moody's upgrades Dominican Republic's issuer rating to Ba3 from B1, outlook stable
Global Credit Research - 20 Jul 2017
New York, July 20, 2017 -- Moody's Investors Service has today upgraded the Dominican Republic's long term issuer and debt ratings to Ba3 from B1 and changed the outlook to stable from positive, based on the following key drivers:
(1) The Dominican Republic's continued robust growth outlook compared to rating peers, coupled with a reduction in external risks as current account deficits have declined and international reserves have increased.
(2) The reduction in fiscal deficits over the last four years and Moody's expectation that fiscal deficits will remain shy of 3% of GDP, supported by fiscal restraint and reduced transfers to the electricity sector.
Moody's has also raised the Dominican Republic's long-term foreign-currency bond ceiling to Ba1 from Ba2, and the long-term foreign-currency bank deposit ceiling to B1 from B2. The short-term foreign-currency deposit and bond ceilings remain unchanged at Not Prime (NP). Finally, the long-term local-currency bond and deposit ceilings have been raised to Baa3 from Ba1.
RATINGS RATIONALE
RATIONALE FOR THE UPGRADE TO Ba3
CONTINUED ROBUST GROWTH OUTLOOK AND LOWER EXTERNAL RISKS
Over the last decade, the Dominican Republic has grown faster than other Caribbean islands in our rated universe, growing at an average 5.8% annually from 2006 to 2016 compared to a median of 1% in the Caribbean. In 2016 real GDP grew 6.6%, the highest rate in Latin America and the Caribbean for a third consecutive year. Last year's performance was supported largely by services (mainly tourism) and construction.
The strength and competitiveness of the Dominican Republic's tourism industry, which currently contributes around 17.3% of GDP, and 15.9% of total employment, is likely to continue to support medium term growth prospects. Tourist arrivals last year grew 6.4% relative to 2015 and total arrivals have increased to 6 million a year from 4.6 million in 2012. Future prospects remain strong due to investment in infrastructure during the last 5 years, coupled with cost competitiveness aided by a flexible exchange rate.
High growth is reflected in the rise in GDP per-capita to $16,049 (2016 data, PPP), higher than the median for Ba-rated sovereigns ($14,493) and more than twice the median of the B-rated category ($6,844). Economic growth and targeted social spending over the last four years has helped reduce poverty and unemployment, improving economic resilience.
Growth has been accompanied by a reduction in external risks, although these have not been eliminated. Thanks to lower oil prices and strong growth in tourism and remittances, current account deficits have shrunk over the past seven years to 1.4% of GDP in 2016 from 7.6% in 2010, the lowest level in 11 years. International reserves have risen steadily since 2014, and now cover 3.9 months of imports. Even though it is likely that current account deficits will widen with any increase in oil prices, we expect them to peak at 2.5%-3.0% of GDP, which would be significantly lower than their levels of 6%-7% of GDP reported in the early 2010's. The reduction in the oil and gas import bill to 3% of GDP last year from 6% to 8% of GDP in 2012-14 was helped by lower global oil prices but also owes significantly to other contributing factors that will endure through potential oil price fluctuations. First, there will be a reduction in oil and gas dependence due to the construction of Punta Catalina, a coal-based electricity plant which will become operational in 2018. In addition, gold exports, which were almost zero in 2012, have begun to contribute to exports since 2013 with the construction of a Barrick gold mine. Gold exports amounted to $1.56 billion in 2016, around 2% of GDP, and the IMF expects gold exports to represent on average 1.4% of GDP in the next four years.
FISCAL RESTRAINT AND REDUCED TRANSFERS TO ELECTRICITY SECTOR SUPPORT FISCAL POSITION
The Medina administration, which assumed power in 2012 and was reelected in May 2016, has maintained gradual fiscal consolidation, reducing the fiscal deficit to 2.8% of GDP last year, from a peak of 6.6% during the 2012 election year. Last year was also the first time in ten years that the non-financial public sector reported a primary surplus of 0.1% of GDP, from a deficit of 0.4% of GDP in 2015.
We expect fiscal deficits to continue to be stable at around 3% of GDP in the next two to three years. The construction of Punta Catalina, coupled with the completion of other smaller projects by 2020, should reduce the transfers from the central government to the electricity companies to $500 million a year from materially higher levels, with a peak in 2012 of $1.2 billion. Punta Catalina is also expected to partially solve the country's issues with electricity shortages and high energy prices, as it will supply with 720 MW of energy, equivalent to 30% of demand.
Moderate fiscal deficits and high real GDP growth will limit the increase in government debt ratios which we forecast at 38.7% this year and 39% in 2018. Government debt to GDP ratios in the Dominican Republic have been lower than the B-median for the past decade and lower than the Ba3-median since 2014.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects our view that the Ba3 rating captures the balance of risks to Dominican Republic's credit profile. We expect economic growth to remain robust and balance of payments risks to be contained. At the same time, we don't expect meaningful reductions in government debt levels nor the implementation of structural reforms that would further strengthen the fiscal frameworks. Despite recent improvements, the Dominican Republic continues to face challenges, related to its external balances as well as low government revenues. More than 70% of government debt is denominated in foreign currencies and interest payments consume 19.6% of government revenues.
WHAT COULD MOVE THE RATING DOWN
A weakening of external finances that results in a substantial decrease of foreign exchange reserves and/or a structural deterioration in the current account deficit could put downward pressure on the rating. Material fiscal slippage that reverses progress on consolidation and leads to continued increases in debt levels or funding costs could also lead to a lower rating.
WHAT COULD MOVE THE RATING UP
The sovereign rating could face upward pressure if there were to be material strengthening of the balance of payments and external liquidity position. A decline in the share of government debt denominated in foreign currency, or an improvement in debt affordability indicators, driven by a reduction in debt levels or an increase in government revenues, could also lead to an improvement in credit quality. The implementation of fiscal and structural reforms that demonstrate rising institutional strength would also support the credit profile.
GDP per capita (PPP basis, US$): 16,049 (2016 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 6.6% (2016 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.7% (2016 Actual)
Gen. Gov. Financial Balance/GDP: -2.8% (2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -1.4% (2016 Actual) (also known as External Balance)
External debt/GDP: 40.8% (2016 Actual)
Level of economic development: Low level of economic resilience
Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.
On 19 July 2017, a rating committee was called to discuss the rating of the Dominican Republic, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have materially increased. The issuer's fiscal or financial strength, including its debt profile, has materially increased. The issuer has become less susceptible to event risks.
The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.
REGULATORY DISCLOSURES

Rating Action: Moody's upgrades Dominican Republic's issuer rating to Ba3 from B1, outlook stable
Global Credit Research - 20 Jul 2017
New York, July 20, 2017 -- Moody's Investors Service has today upgraded the Dominican Republic's long term issuer and debt ratings to Ba3 from B1 and changed the outlook to stable from positive, based on the following key drivers:
(1) The Dominican Republic's continued robust growth outlook compared to rating peers, coupled with a reduction in external risks as current account deficits have declined and international reserves have increased.
(2) The reduction in fiscal deficits over the last four years and Moody's expectation that fiscal deficits will remain shy of 3% of GDP, supported by fiscal restraint and reduced transfers to the electricity sector.
Moody's has also raised the Dominican Republic's long-term foreign-currency bond ceiling to Ba1 from Ba2, and the long-term foreign-currency bank deposit ceiling to B1 from B2. The short-term foreign-currency deposit and bond ceilings remain unchanged at Not Prime (NP). Finally, the long-term local-currency bond and deposit ceilings have been raised to Baa3 from Ba1.
RATINGS RATIONALE
RATIONALE FOR THE UPGRADE TO Ba3
CONTINUED ROBUST GROWTH OUTLOOK AND LOWER EXTERNAL RISKS
Over the last decade, the Dominican Republic has grown faster than other Caribbean islands in our rated universe, growing at an average 5.8% annually from 2006 to 2016 compared to a median of 1% in the Caribbean. In 2016 real GDP grew 6.6%, the highest rate in Latin America and the Caribbean for a third consecutive year. Last year's performance was supported largely by services (mainly tourism) and construction.
The strength and competitiveness of the Dominican Republic's tourism industry, which currently contributes around 17.3% of GDP, and 15.9% of total employment, is likely to continue to support medium term growth prospects. Tourist arrivals last year grew 6.4% relative to 2015 and total arrivals have increased to 6 million a year from 4.6 million in 2012. Future prospects remain strong due to investment in infrastructure during the last 5 years, coupled with cost competitiveness aided by a flexible exchange rate.
High growth is reflected in the rise in GDP per-capita to $16,049 (2016 data, PPP), higher than the median for Ba-rated sovereigns ($14,493) and more than twice the median of the B-rated category ($6,844). Economic growth and targeted social spending over the last four years has helped reduce poverty and unemployment, improving economic resilience.
Growth has been accompanied by a reduction in external risks, although these have not been eliminated. Thanks to lower oil prices and strong growth in tourism and remittances, current account deficits have shrunk over the past seven years to 1.4% of GDP in 2016 from 7.6% in 2010, the lowest level in 11 years. International reserves have risen steadily since 2014, and now cover 3.9 months of imports. Even though it is likely that current account deficits will widen with any increase in oil prices, we expect them to peak at 2.5%-3.0% of GDP, which would be significantly lower than their levels of 6%-7% of GDP reported in the early 2010's. The reduction in the oil and gas import bill to 3% of GDP last year from 6% to 8% of GDP in 2012-14 was helped by lower global oil prices but also owes significantly to other contributing factors that will endure through potential oil price fluctuations. First, there will be a reduction in oil and gas dependence due to the construction of Punta Catalina, a coal-based electricity plant which will become operational in 2018. In addition, gold exports, which were almost zero in 2012, have begun to contribute to exports since 2013 with the construction of a Barrick gold mine. Gold exports amounted to $1.56 billion in 2016, around 2% of GDP, and the IMF expects gold exports to represent on average 1.4% of GDP in the next four years.
FISCAL RESTRAINT AND REDUCED TRANSFERS TO ELECTRICITY SECTOR SUPPORT FISCAL POSITION
The Medina administration, which assumed power in 2012 and was reelected in May 2016, has maintained gradual fiscal consolidation, reducing the fiscal deficit to 2.8% of GDP last year, from a peak of 6.6% during the 2012 election year. Last year was also the first time in ten years that the non-financial public sector reported a primary surplus of 0.1% of GDP, from a deficit of 0.4% of GDP in 2015.
We expect fiscal deficits to continue to be stable at around 3% of GDP in the next two to three years. The construction of Punta Catalina, coupled with the completion of other smaller projects by 2020, should reduce the transfers from the central government to the electricity companies to $500 million a year from materially higher levels, with a peak in 2012 of $1.2 billion. Punta Catalina is also expected to partially solve the country's issues with electricity shortages and high energy prices, as it will supply with 720 MW of energy, equivalent to 30% of demand.
Moderate fiscal deficits and high real GDP growth will limit the increase in government debt ratios which we forecast at 38.7% this year and 39% in 2018. Government debt to GDP ratios in the Dominican Republic have been lower than the B-median for the past decade and lower than the Ba3-median since 2014.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects our view that the Ba3 rating captures the balance of risks to Dominican Republic's credit profile. We expect economic growth to remain robust and balance of payments risks to be contained. At the same time, we don't expect meaningful reductions in government debt levels nor the implementation of structural reforms that would further strengthen the fiscal frameworks. Despite recent improvements, the Dominican Republic continues to face challenges, related to its external balances as well as low government revenues. More than 70% of government debt is denominated in foreign currencies and interest payments consume 19.6% of government revenues.
WHAT COULD MOVE THE RATING DOWN
A weakening of external finances that results in a substantial decrease of foreign exchange reserves and/or a structural deterioration in the current account deficit could put downward pressure on the rating. Material fiscal slippage that reverses progress on consolidation and leads to continued increases in debt levels or funding costs could also lead to a lower rating.
WHAT COULD MOVE THE RATING UP
The sovereign rating could face upward pressure if there were to be material strengthening of the balance of payments and external liquidity position. A decline in the share of government debt denominated in foreign currency, or an improvement in debt affordability indicators, driven by a reduction in debt levels or an increase in government revenues, could also lead to an improvement in credit quality. The implementation of fiscal and structural reforms that demonstrate rising institutional strength would also support the credit profile.
GDP per capita (PPP basis, US$): 16,049 (2016 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 6.6% (2016 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.7% (2016 Actual)
Gen. Gov. Financial Balance/GDP: -2.8% (2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -1.4% (2016 Actual) (also known as External Balance)
External debt/GDP: 40.8% (2016 Actual)
Level of economic development: Low level of economic resilience
Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.
On 19 July 2017, a rating committee was called to discuss the rating of the Dominican Republic, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have materially increased. The issuer's fiscal or financial strength, including its debt profile, has materially increased. The issuer has become less susceptible to event risks.
The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.
REGULATORY DISCLOSURES

Imagine for a moment where the Island could be financially....if it was not so corrupt.

The ratings point out that even though the DR is a good house in a bad neighborhood.....their bonds are still "junk."

If only they could stem the pervasive corruption, those bonds might rise to low investment grade......and then watch as their debt service is lowered because their interest rates they need to pay to support their debt would fall................and lots of "clean" investment money would then start to pour in.

They could become a leading player throughout the Caribbean and Latin America......they could.........but sadly...........they won't.

Imagine for a moment where the Island could be financially....if it was not so corrupt.

The ratings point out that even though the DR is a good house in a bad neighborhood.....their bonds are still "junk."

If only they could stem the pervasive corruption, those bonds might rise to low investment grade......and then watch as their debt service is lowered because their interest rates they need to pay to support their debt would fall................and lots of "clean" investment money would then start to pour in.

They could become a leading player throughout the Caribbean and Latin America......they could.........but sadly...........they won't.

Respectfully,
Playacaribe2

Lets face it the majority of the population has no idea how things work outside this island. If anyone here Pichardo included can honest say that the vast majority of their interactions with locals show an extreme lack of common sense. This could be a result of poor upbringing and/or poor education or just an overall laziness to learn. This along with corruption, how can things really improve. Hell, Realtors here still have to lie about areas with 24/7 electricity. Still a little in the 3rd world dark ages I'm sorry to say.

Maybe by next year (which by no coincidence will be the complete decade of this thread) you guys are willing to admit you still don't know squat about the DR economy and your Gloom and Doom spiral of death for the DR economy will be put to rest!?

And You know squat about US. I have been reading your abominable sweetness about the greatness of DR and having the gall to compare to U S. I say You, being a paid political operative should just stay wherever you are and keep your cheeriness about this country DR quiet because your lies like the other paid govt flakies here are nauseatingly lies. I do not and will not begin my debate with you but I just had to vent here. I can only think most, if not everyone here realizes your aversion to truths. Everyone here, of course might be very afaid of speaking the truths that better to keep the "little people" down as a well known b...tch" in the US called the populace. And you pichardo (whoever you are) doing same. Try to make the lies and realities of 0 educational incentives, 0 infrastructure, 0 hope, 0 prospects for jobs and 0 middle class in this third world, primitive (except for hotel builders, contractors) country. Who do you think you are kidding. Come to Veron. Come to NYC...to Manhattan and sell your rosiness to the bankers, hedge funders and then stroll up Madison and 57th Street. Sell your DR promises of great futures to them and stop selling your "pitch" to DR1rs. You are not telling the truth.

After almost a decade of well documented posts and most notably: pronostications by so called "experts" to the contrary of my posts validated by time here and there. It's easy to see who was right and those that were blinded by their own "expertise".

The DR economy is the darling of economists when it comes to the region as a whole.

Economies share the same mechanics in most regions, save for the distribution or dynamics of their respective industries. Hence why I compared in some posts to those of our big brother.

Corruption? In the biggest economies is in the bylaws themselves! A well oiled and greased mechanism, where a set of stairs on public land can be billed at stratospheric levels! All legalized.

The proof is in the pudding for all to see!

Almost a decade to compare notes and words.

As for ratings?
We have been to the bottom of the scale and yet, here we are!

Like I said: Wait until we tap our potential and outperform the largest economies of LA in dynamics.

Punta Catalina is the key for our future energy independence.
Onde it start it will use imported raw material for energy production, then it will be adapted to use nationally supplied raw materials. The money will stay here. Billions upon billions of pesos circulating in the local economy.

The wind farms are also expanding, as are many solar plants in the process.

As for political affiliations? No PLD nor once known PRD.

Once again you guys want to come up with nonsense when presented with about a decade of facts.

After almost a decade of well documented posts and most notably: pronostications by so called "experts" to the contrary of my posts validated by time here and there. It's easy to see who was right and those that were blinded by their own "expertise".

The DR economy is the darling of economists when it comes to the region as a whole.

Economies share the same mechanics in most regions, save for the distribution or dynamics of their respective industries. Hence why I compared in some posts to those of our big brother.

Corruption? In the biggest economies is in the bylaws themselves! A well oiled and greased mechanism, where a set of stairs on public land can be billed at stratospheric levels! All legalized.

The proof is in the pudding for all to see!

Almost a decade to compare notes and words.

As for ratings?
We have been to the bottom of the scale and yet, here we are!

Like I said: Wait until we tap our potential and outperform the largest economies of LA in dynamics.

Punta Catalina is the key for our future energy independence.
Onde it start it will use imported raw material for energy production, then it will be adapted to use nationally supplied raw materials. The money will stay here. Billions upon billions of pesos circulating in the local economy.

The wind farms are also expanding, as are many solar plants in the process.

As for political affiliations? No PLD nor once known PRD.

Once again you guys want to come up with nonsense when presented with about a decade of facts.

Man , where are these gold rainbows you speak of? I see more vacancies then Chernobyl.